Question

At the beginning of the year, Grillo Industries bought three used machines from Freeman Incorporated. The machines immediately were overhauled, were installed, and started operating. Because the machines were different, each was recorded separately in the accounts.

	Machine A			Machine B			Machine C
Cost of the asset	$	10,400		$	39,600		$	23,400
Installation costs		1,000			3,500			2,600
Renovation costs prior to use		800			3,100			3,600
Repairs after production began		700			1,000			2,100

By the end of the first year, each machine had been operating 8,000 hours.

Required:

1. Compute the cost of each machine.
2. Prepare the journal entry to record depreciation expense at the end of year 1, assuming the following:

	Estimates
Machine	Life		Residual Value				Depreciation Method
A	5	years		$	2,400		Straight-line
B	20,000	hours			2,000		Units-of-production
C	10	years			1,900		Double-declining-balance

Answer 1

Computation of Cost of Each Machine
	Machien A	Machine B	Machien C
Invoice Price Paid for Asset	$10,400.00	$39,600.00	$23,400.00
Instotallation Cost	$1,000.00	$3,500.00	$2,600.00
Renovation Cost prior to use	$800.00	$3,100.00	$3,600.00
Tototal Cost of Machine	$12,200.00	$46,200.00	$29,600.00

Journal Entry
Machine A
Depreciation Expense	$19,600.00
Accumulated Depreciation		$1,960.00
Machine B
Depreciation Expense	$17,680.00
Accumulated Depreciation		$17,680.00
Machine C	$5,920.00
Depreciation Expense		$59,200.00
Accumulated Depreciation

Working Note

Deprection for Machine A

Depreciation as per SLM= (Cost of Machien - Residual Value)useful life

=(12200-2400)/5= $1960

Depreciation for Machine B

Depreciation as per as per Unit of Production=( (Cost of Machine - Residual Value)/Unit of Production) Actual Hour

=((46200-2000)/20000)*8000= $17680

Depreciation Machine C

Rate of Depreciation = 1/ Usefule Life X2

=1/10X2= 20%

=29600*20%= $5920